The Dalmia saga: Nailed by the Net

Feb 20, 2006

For a man who manipulated infotech companies, it is only fitting that Dinesh Dalmia’s activities were trailed by employees and associates that kept popping out of cyberspace and linked journalists across the world.

Until 2000, Dinesh Dalmia’s DSQ Software was just another company whose management cooked its books, hid audit trails through frenetic name changes and exploited every bull run to make a killing for the promoter group. What distinguished Dalmia was his brazen confidence in his ability to fool most people most of the time. The string of eminent persons who were persuaded to join his board and face the ignominy of being barred from the capital market is clear testimony to this.

I met Dinesh Dalmia on May 25, 2001, at his request. As I wrote in these columns that week, he wanted to ‘‘clear certain issues and misconceptions’’. His story was that DSQ Software ‘‘had no borrowings anymore and was among the only Indian companies to have paid back all the money it owed banks and institutions’’. Before the Ketan Parekh led Bull Run, DSQ had been listed a defaulter by a dozen banks and institutions.

Dalmia wanted to convince me that he had turned a new leaf. He planned to stay away from capital market speculation and like Arjuna of the Mahabharat, his attention was focussed on the eye of the fish (running DSQ Software), he said. He would soon turn DSQ Software into another Infosys, he boasted, because, unlike N. Narayana Murthy, he was a businessman.

A source had told me that Dalmia had quietly increased DSQ Software’s capital from Rs 30.5 crore to Rs 47 crore, I asked him about it. Dalmia claimed there was no secrecy, stock exchanges had been informed about the deal to buy out a San Jose-based company called Fortuna Technologies through a preferential offering to three Mauritius-based companies; hence the increase in capital. I soon learnt that this was all a lie.

As I said, Dalmia failed to reckon with the power of the Internet and it probably played the biggest role in getting him caught. A consultant to Fortuna Technology read my article on the Net and pointed out that there was no such deal with Dalmia. He put me in touch with Fortuna’s San Jose-based Indian-American promoter, T.C. Ashok, and the dirt came tumbling out. Ashok’s discussion with Fortuna was about an all-cash deal and that too had already fallen through.

Investigations later revealed that the three Mauritius companies belonged to Dalmia himself and the 1.3 crore shares allotted to them were re-introduced into the market to cover up the Calcutta Stock Exchange (CSE) scam. He had also fraudulently asked the National Share Depository to dematerialise the additional share capital while at the same time delivered some physical shares to his Kolkata broker cronies who had helped ramp up his share price.

When the heat of the investigations increased, Dalmia made plans to flee. He quietly bilked considerable value from DSQ Software and extracted a nest egg for his US operations. Ironically, despite the notorious market manipulations, DSQ Software had a decent set of international contracts, which found a willing buyer in Ramesh Vangal of Scandent. An alarmed international source began to give me detailed information about those negotiations and the final deal. That part of Dalmia’s dealings is being probed exceptionally slowly by the Enforcement Directorate for over three years.

While Dalmia dumped DSQ Software and fled to the US with its money, none of the banks and mutual funds who had bought expensive DSQ shares voiced any protest; not even when I reported details of how he spun off all the foreign subsidiaries in UK, Singapore and US into independent companies, repeatedly changed their names to obfuscate any audit trail and turned them into personal assets.

Again several sources e-mailed information from around the world about his international shenanigans and the red Ferrari he used to zip around New Jersey. Only government investigators had no sources or information and were too shy to ask. Dalmia fled India as the Fortuna investigation heated up in 2002. The Central Bureau of Investigation (CBI) then posted an Interpol red corner notice against him.

Yet, Dalmia was unfazed. The same group of top employees, who worked with him at DSQ Software, moved over to his brand new BPO business and had the audacity to operate out of Gurgaon, Bangalore and Chennai under the Allserve name. But nemesis caught up with him when he tried to acquire a Texas-based outsourcing company called Aegis Communications. That is when Christopher Byron, a New York Post journalist got on to his trail, worried at the transfer of confidential personal data to an Indian company.

He found it strange that the buyer of Aegis was hiding behind a numbered Tortola account and on discovered the Dalmia connection. Again, it is Google and the Net that helped Christopher Byron contact me and allowed us to connect up several dots in the case.

Although the Aegis deal fell through after the New York Post expose, Dalmia was unfazed. Pretty soon, he aimed even higher and attempted to reverse merge one of his entities into Nasdaq-listed company called TACT. That deal didn’t stand up to the relentless exposure by the Post.

Byron’s meticulous investigation spanned Dalmia’s US operations, Tortola accounts and his London dealings. Another break came when Dalmia’s empire suddenly collapsed like a pack of cards and he was forced to file for bankruptcy, exposing global borrowing of over $130 million and an international trail of fraud and forgery.

This broad picture does not even begin to cover the complex web of obfuscation created by setting up ‘‘mirror companies’’ around the world and often in the same city to confuse and confound any investigator. Most of these were shells operating through numbered accounts in tax havens. As the bankruptcy proceedings heated up, Dalmia fled to India, allegedly after transferring more funds to safe tax havens.

Remarkably, Indian investigation agencies simply refused to take cognisance of our reports for three years and allowed him to continue living like a prince in a New Jersey mansion and zip around in his Ferrari. Even after his return to India, it was three weeks before the Finance Ministry’s intervention led to Dalmia’s arrest. Whether the arrest leads to investigation and justice will be another story.